It's a four-year, $77-million pact, sources told ESPN's Adrian Wojnarowski.
Sabonis can make as much as $85 million with bonuses, his agent told Wojnarowski.
The 23-year-old can earn $2.6 million in incentives per season - split evenly for an All-Star or All-NBA team selection in each campaign of the deal, sources told ESPN's Tim Bontemps.
Sabonis' extension doesn't include any player or team options, sources told The Athletic's Scott Agness.
"I'm very excited to remain with the Pacers, this is where I wanted to be," Sabonis said in a statement. "I appreciate the organization showing their confidence in me; and I'm ready to be part of what's going to be a great year for our team."
The Lithuanian averaged 14.1 points and 9.3 boards last season while also finishing second in Sixth Man of the Year voting. He shot 59% from the field, which was seventh among all qualified players.
However, Sabonis doesn't provide much spacing or rim protection. He's averaged less than a 3-point attempt per game and 0.4 blocks across 229 career appearances.
Sabonis is set to make $3.5 million this upcoming season, which is the final year on his rookie deal.